Employers have an increasing array of retirement plans to consider for their workers, including state-run benefits programs for the private sector, says Craig Silverstein, head of retirement services product strategy at Paychex, a provider of human resource, payroll and benefits outsourcing services based in Rochester, New York.
Silverstein spoke with StrategicCHRO360 about what HR leaders should consider when choosing which options are best for their organizations, how the benefits that employees want is changing and how retirement benefits can be a talent retention tool.
There has been a lot of buzz around state-run benefits programs for the private sector to offer (i.e., CalSavers). What are a few important things HR teams at small businesses should consider as they weigh out their options?
America is facing a retirement crisis, and state-run benefits programs are underscoring a critical-need access to retirement benefits to help the workforce save for a secure financial future. It’s great to see a bipartisan focus on addressing this challenge, as it gives HR professionals even more options to choose from when setting up their benefits programs for employees.
When you are evaluating which type of retirement benefit to offer your employees, it’s important to think about all of your options. While the CalSavers program will enable you to meet the mandate, it has several limitations and may not be available to all of your employees. This program is an individual ROTH IRA option, which can be very limiting. There is an annual contribution cap of $6,000-$7,000, depending on your age, and not all employees can participate in the retirement program—high earners are likely not eligible.
While this option does check the box for compliance, there are more options that help meet the regulatory requirements and also offer a more robust—and competitive—retirement benefit. A more customized plan that can give tax benefits to both employees and the business is available through a 401(k) and pooled employer plan. PEPs deliver all of the savings benefits of a 401(k), but provide reduced fiduciary liability for employers, simplified plan management and reduced plan expenses when compared to single-employer retirement plan offerings. These options are readily available to small businesses and are robust plans that can help attract and retain employees.
What’s the biggest difference between government programs like CalSavers and other retirement offerings?
The government-sponsored programs are a great stepping stone. They offer access to retirement benefits, which is one of many steps to solving this challenge Americans face. However, there is typically a significant amount of administrative burden that this places on the employer to run and maintain compliance with this type of program. This means while some programs like CalSavers are technically free, there are a lot of internal resources that must be dedicated to managing the program.
The biggest differences between these types of retirement plans is a company match, the maximum amount employees can contribute and who is eligible to participate—as, again, business owners and high earners may be prohibited from participating in this type of plan. Through a program like CalSavers, there is no company match option, and the contribution max an individual can make is between $6,000-$7,000, depending on their age.
With other retirement offerings, such as a SIMPLE IRA or 401(k), the contribution max is much higher. Additionally, other advantages such as tax benefits and owner retirement savings options make setting up a 401(k) plan a smart benefit option as the ability for pre-tax contributions can be a significant benefit for the employees and employer.
How has remote work changed benefits administration for CHROs, specifically for those who have employees in different states? For example, if the company is headquartered in one state but has a handful of employees in a state with a government-sponsored retirement mandate such as California, what does that mean for the CHRO?
A lot has changed in terms of what our workplace can be. There has been a rapid expansion and acceptance of remote work, and this brings a whole new challenge for HR professionals, as there are important regulations that employers must comply with.
For something like CalSavers, regardless of the employer’s location, any employee who is at least age 18 and has the status of an “employee” under California law subject to Unemployment Insurance Code Sections 621 et seq and receives an IRS Form W-2 with California wages, is eligible for the CalSavers program. Sole proprietors and partners in a partnership are also considered eligible employees if their compensation is subject to California law. If an employer has a minimum of five or more eligible employees in California, the employer is mandated to offer a retirement plan or participate in the CalSavers IRA Program.
Why are retirement benefits such an important offering for employees? How can HR leaders determine what is best for the team’s immediate and longer-term needs, especially with how much change people have endured in the past 18 months?
The impact of Covid-19 on people and businesses will continue to evolve. Priorities quickly changed and the way people worked, socialized and lived all were impacted. In-office benefits and travel perks quickly became trivial and what employees valued shifted.
While the concern varied from person to person, there was one collective feeling of uncertainty that most Americans felt during this unprecedented time. Uncertainty about how to keep themselves and loved ones safe and healthy. Uncertainty about their children’s schooling. Uncertainty about the future of their employment. Uncertainty about their financial future.
And what did this mean for HR teams and leaders? It put a lot of pressure on HR teams to assess challenges and quickly pivot to help employees address those hurdles. There is now an opportunity to reassess and address what employees find as important benefits moving forward, and there is a renewed emphasis on overall wellness, which includes savings as it relates to financial wellness.
Why are retirement benefits so important? Recruitment and retention. Right now, it is such a competitive job market that there is truly a war on talent. Surveys show an overwhelming majority of today’s job candidates prefer an employer who offers a good benefits package. A 401(k) is a benefit that potential employees are familiar with and understand the value it can serve. Employees who have benefits tend to stay longer in their jobs, saving HR professionals the cost of replacement and onboarding.